State demonstrates national leadership in addressing public employee retirement crisis

Thursday, June 15, 2017

MIDLAND — Policy experts at the Mackinac Center for Public Policy hailed the passage of legislation today that puts Michigan’s public education system back on the road to fiscal stability and makes the state a national leader in public employee pension reform.

The Michigan Public School Employees Retirement System (MPSERS) has caused fiscal stress for the state’s public education system with $29.1 billion in unfunded liabilities. House Bill 4647 and Senate Bill 401 make great strides in reforming this system. They do so by prioritizing defined contribution plans and limiting the future scope of the pension system, while fulfilling commitments to current teachers and retirees.

Mackinac Center for Public Policy President Joseph G. Lehman called the reforms “monumental” and praised House and Senate leadership who prioritized them.

“For decades, elected officials around the United States failed to reform public pensions, hoping the ever-growing liabilities would be dealt with by someone else,” Lehman said. “Speaker Tom Leonard, Majority Leader Arlan Meekhof and their colleagues who supported this needed legislation deserve real credit for having done more to secure their state’s financial future from pension debt than any other group of legislators in the nation.”

Governor Rick Snyder is expected to sign the legislation early next week. “It’s very rare for a governor to achieve a structural reform of this magnitude in his seventh year in office and Governor Snyder deserves recognition for adding major pension reform to his list of accomplishments,” Lehman added.

Because state pension administrators have made insufficient contributions and unrealistic investment assumptions, pension debt now consumes over a third of school payrolls. In 2002, pensions accounted for just 12 percent of payroll.

“The Mackinac Center first warned these sorts of reforms would be necessary back in 2006, and we’ve been making the case more strongly since 2011 when it became increasingly obvious what was about to happen to our schools’ budgets,” Lehman said. “Today’s reform isn’t perfect, but it meets the criteria we’d proposed for good policy: It doesn’t make any cuts for current teachers or retirees, it gives the next generation of educators better choices and it limits the addition of new unfunded liabilities.”

“This reform limits the ability to promise benefits now and pay for them later,” said James Hohman, assistant director of fiscal policy at the Mackinac Center. “Underfunded pensions have stretched governments thin and provide no value to residents.”